Dec. 27 (Bloomberg) -- The labor market and housing
strengthened, signaling the U.S. expansion may withstand the
fiscal impasse.

“The economy is holding up just fine right now,” said
Neil Dutta, head of U.S. economics at Renaissance Macro Research
LLC in New York. “Folks that are thinking there was going to be
some cataclysmic economic shock to close out the year, I don’t
think that’s right.”

Applications for unemployment-insurance payments fell by
12,000 to 350,000 in the week ended Dec. 22, bringing the
average over the past month to the lowest level in more than
four years, Labor Department figures showed today in Washington.
Purchases of new houses rose 4.4 percent in November to a
377,000 annual pace, the highest level since April 2010,
according to data from the Commerce Department. A third report
showed consumer confidence slumped this month.

The claims data indicate companies are seeing enough demand
to maintain headcounts, a necessary development before hiring
picks up. Stocks rebounded in the final hour of trading, paring
most of their earlier losses, amid optimism a budget deal will
be reached. After the close, Senator Dick Durbin said Democratic
and Republican leaders plan to meet with President Barack Obama
at the White House tomorrow.

“If you could take the fiscal cliff off the table, if you
could get the gorilla out of corner of the room, the platform
for growth in 2013 is looking reasonably solid,” said John
Ryding, chief economist of RDQ Economics in New York. “But how
do you get the gorilla out of the room? That’s the problem.”

Shares Drop

The Standard & Poor’s 500 Index ended little changed,
dropping 0.1 percent to 1,418.1 at the close in New York. The
gauge had tumbled as much as 1.3 percent earlier in the day
after Senate Majority Leader Harry Reid said a resolution to the
budget dispute appeared unlikely because Republicans wouldn’t
cooperate.

Elsewhere today, Italian business confidence rose in
December for a second month after a recession eased in the third
quarter and the nation’s borrowing costs declined.

Confidence among U.S. consumers declined more than forecast
in December as the budget debate in Washington soured Americans’
outlook for the economy.

The Conference Board’s sentiment index fell to 65.1 from a
revised 71.5 reading the prior month, figures from the New York-based private research group showed. The gauge was projected to
fall to 70, according to the Bloomberg survey median.

Expectations Tumble

The group’s gauge of expectations for the next six months
decreased to 66.5, a one-year low, from 80.9. The measure of
present conditions climbed to 62.8 this month, the highest since
August 2008, from 57.4 in November.

That is in line with the Bloomberg Consumer Comfort Index,
a compilation of Americans’ views on the current state of
economy, buying climate and personal finances. The measure eased
to minus 32.1 in the week ended Dec. 23 from minus 31.9 the
prior period, a drop that was within the margin of error of 3
percentage points. The gauge was less than a point from an April
reading that was the highest since March 2008.

“The sudden turnaround in expectations was most likely
caused by uncertainty surrounding the oncoming fiscal cliff,”
Lynn Franco, director of economic indicators at the Conference
Board, said in a statement. “While consumers are quite negative
about the short-term outlook, they are more upbeat than last
month about current business and labor market conditions.”

Estimating Claims

The U.S. federal holiday on Dec. 24 prompted many state
employment offices to close, making it more difficult to
complete the jobless claims tally in time, a Labor Department
spokesman said as the figures were released today. Fourteen
states and territories provided their own estimates, which are
usually “fairly accurate,” the spokesman said. The Labor
Department estimated data for five states that didn’t provide
any figures, he said.

The median estimate in a Bloomberg survey of 41 economists
called for 360,000 claims. Projections ranged from 350,000 to
375,000. The prior week’s applications were revised to 362,000
from an initially reported 361,000.

The four-week moving average of claims, a less-volatile
measure, dropped to 356,750, the lowest since March 2008.

Demand for new houses was up 15.3 percent from November
2011, today’s report showed. The median price rose 14.9 percent
in November from the same month a year ago to $246,200.

Housing Rebound

Low mortgage rates and dwindling foreclosures are
stabilizing prices and attracting buyers more than three years
after a recession that was fueled by the industry’s collapse.
Growing demand coupled with less inventory has given a boost to
builders such as Toll Brothers Inc.

“The housing market’s in a steady recovery that’s likely
to continue,” said Renaissance Macro’s Dutta. “We’re probably
in the early stages of this positive feedback loop” of cheap
credit, tight inventory and rising prices, he said.

Builder confidence has been improving as well. The National
Association of Home Builders/Wells Fargo builder sentiment index
increased in November to the highest level since April 2006.

Cheaper borrowing costs are helping drive housing demand. A
30-year, fixed-rate mortgage averaged 3.35 percent in the week
that ends today, according to Freddie Mac. That is little
changed from the 3.31 percent reached in late November that was
the lowest in data going back to 1972.

Policy makers are striving to keep rates low to spur an
even bigger recovery in housing. The Federal Reserve, which has
kept its benchmark interest rate near zero since 2008, this
month said it would hold it low “at least as long” as
unemployment remains above 6.5 percent and inflation projections
are for no more than 2.5 percent.

“Pent-up demand, rising home prices, low interest rates,
and improving customer confidence motivated buyers to return to
the housing market in fiscal year 2012,” Toll Brothers Chief
Executive Officer Douglas Yearley said on a Dec. 4 earnings
call. “As household formations accelerated and unsold home
inventories dropped to record lows, the industry took further
steps towards a sustained housing recovery.”